Quest for the truth

Ned is determined to get to the bottom of the spike in key risk indicators (KRIs). It would not be long before Peter Principal, the CEO, would be on his doorstep wanting his update on thecorporate risk profile for next week’s board meeting. The focus of the board meeting will be a review and approval of the capital plan prior to theform 10-k SEC filing. Before departing for the conference in San Francisco and vacation with family, Ned had completed his narratives to support his corporate risk profile ratings and trends for the major risk categories for the past 6 months. Now this could change everything!

What was looking to be stable, or decreasing risk, now appears to be increasing for credit risk, transaction risk, price risk, reputation risk, and strategic risk! What makes matters worse, the Board has invited their primary bank regulator to attend the next meeting and Ned knows that Tom Scrutiny, Examiner in Charge, will most certainly be attending the meeting as an honored guest!

“Boy, this is just not what I needed—what horrible timing,” he tells himself! Ned ponders “I do not have much time to sort all of this out – I’ve got to quickly diagnose the root cause(s), formulate a risk mitigation response, and begin executing it before next week.”

Ned mulls over his next move, which is looking more and more like some pointed dialogue with SteadyBank Operations. He knows Jake Jabber, SteadyBank COO, will get straight answers more quickly than he can extract the truth from the operations staff.

So, Ned heads down to Jake’s office. Together they decide it is time to call Paul, the manager of the eastern region’s processing center in Lexington, Kentucky.

Jake Jabber, COO

Jake dials and, as Paul picks up, he announces himself and begins to interrogate Paul.

“Hey Paul," Jake boomed, "Anything out of the ordinary been going on this past week or two?”

Paul nervously replies, a slight quiver in his voice, “I been meaning to call you Jake, but wanted to make sure we had it handled on this end first so it would be old news and no big deal!”

Jake’s eyes widen, and he replies, “I’m putting you on speaker phone so you can calm Ned’s concerns at the same time – he’s here in my office and he has beaten you to the punch on bringing me bad news!” Jake continues, in a sarcastic tone, “So I trust the answer is that you have this under control now!” There is dead silence on the other end.

Spinning the truth

Paul Winkler, SVP, Tech & Ops Manager

“Hello, Paul! Are you still on the line?” Jake asks.

“Yeah, I’m here.” Paul replies, “Here’s the deal." Paul clears his throat and matter-of-factly reports, "About two weeks ago, as you know, we relocated our lock box facility. In the meantime we had begun to implement the majority of the staff reduction initiatives." There was a pause.

"Well? Please continue Paul," says Jake, "I'm all ears!"

Paul resumes his report, saying, "We contracted with a third party to process the mail over that weekend until we got the new facility operational on Monday." Paul hesitates again, before explaining, "Well, it turns out that accidentally several large bags of mail got misplaced in the corner of the old facility. It wasn’t until a week later that we realized there was a problem."

Paul continues, "We might have noticed quicker, but fewer staff was tasked with more to do and we did not press real hard, since morale is running low." Paul could visualize Jake getting red in the face on the other end and he pauses again to see if Jake has a comeback, but there is only silence on the line.

Paul concludes his explanation with a sigh, saying, "As a result, somewhere between eight hundred to fourteen hundred customers' payments were posted 6 days late."

Paul continues, "This did not affect merchant accounts – only our retail customers residing in the eastern region. I suppose that for some customers our collectors were a bit too aggressive, which no doubt ruffled some feathers. On top of that, recall we raised our late fees recently and shortened the grace period from five to three days.

That’s all I know right now, but say, if you want to pick on folks today you should give Andrew a call over in the Internet Banking Technology Group. I hear that the “checkless payment program ran into an unexpected bug and there were potentially a couple of thousand customers affected!”

Jake Jabber, COO

“That’s enough,” Jake said, “I will circle back with you later today Paul.”

Jake immediately calls Andrew on the speaker phone, who confirms that there is a problem, the extent of which is yet to be determined. Probably not critical in and of itself, but in combination with the other issues, it could loom disproportionately large and further erode customer confidence.

Jake hopes that customers will seek SteadyBank’s help to resolve any bad transactions and not ventilate frustrations to the local press. For Ned, reputation risk is now top of mind.

Note: If you are interested in this series, you will also find value in another GRC tale that illustrates the value of a GRC solution relative to preventing and dealing with a breech in security leading to the theft of customer information. (To access it, simply click on the embedded link in the previous sentence!) For an introduction to SteadyBank and the main characters in this blog series please click on the following title: Understand GRC through SteadyBank . Be sure you read the whole Steadybank saga, so you can learn the GRC lessons of SteadyBank.

About this blog

Clark Abrahams has been with SAS for a decade. A 2011 NACD Governance Fellow, Clark previously worked three decades in various management positions dealing with credit, risk and finance, culminating in a bank executive role reporting directly to the board. He currently serves on the PERC Advisory Board. Clark is a strong proponent of high-performance analytics (HPA), which he envisions will enable quantum leaps in business strategy, problem-solving and decision-making. Clark has been awarded five patents and has two more in the works. Clark has co-authored several books on risk, complinace and decision making: